While looking through our archives of materials related to Toyota associated operations, I ran across a posting that I included in an early internal publication.  It illustrates the early thinking (pre-1995) on how to implement parts consolidation to maximize the transportation economics while also minimizing unnecessary inventory.  The added benefit was the saving of space which could be used for more productive operations.  Our approach included both domestic and overseas sources that produced components which required a complex system combining system driven forecasting and manual/system driven Kanban for parts generation and movement.

So, what does all this mean?  I have included below an enlarged view of the above article graphic that addresses Expanded Parts Consolidation Plan.  This diagram shows how parts from both US Sources and Overseas Sources feed into the Parts Distribution Center (PDC) or into the manufacturing facility.  Basically, the raw material to be formed was received into the main facility and sub-assemblies and already formed components were received into the PDC.  As in the diagram, the domestic parts feeding into the PDC are transported from the suppliers to the PDC using a “milk run” approach as explained in the above diagram.  In volume 16 of From the Archives of a Common Sensei we discussed how the basic early US JIT model projected out 3-6 months at a time and was locked 1 month.  The actual delivery of domestic components was “pulled” from the PDC or raw stock using Kanban (component order release cards or “signals”) from our production lines.  Generally, the most expensive components would be in and out of the PDC within a week and often eventually were sent directly to the manufacturing line directly from the inbound container/truck.  Also, we eventually got to a situation where major components (e.g., engines) could be scheduled for packing at the source (both overseas and domestic) such that they would be offloaded in the sequence that the assembly line required them at TIEM.  That is sequential JIT!

The takeaway from all this is: analyze your components (perhaps using a simple 80/20 rule) to decide where to place your emphasis.  Generally, 20% of the components will make up 80% of the cost.  We tried to “direct source/supply” our most expensive components and spent a lot of time and effort in getting that right!  Scheduling and component design for interchangeability are important for correct and JIT assembly sequencing.  Yes, you also need to pay attention to getting the 80% of the components right, but generally, they will likely be common and cross over various assembly models, thus requiring less sequencing concern.

While some of this may seem common sense practice, I have worked with many businesses where trouble shooting and immediate result pressures override taking a more “systems thinking” approach.  While at TIEM, there was plenty of trouble shooting in the early days to make progress while starting up.  As this proved exhausting for everyone, we began to do the firefighting for some actions necessary for “today” but moved toward a “systems thinking” means for growth.  If we were spending 80% of our time fighting fires, we began to shift that to below 20% so long-term practices became the way of working.

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From the Archives of a Common Sensei Volume 18: TOTAL COST MANAGEMENT and SUPPLY CHAIN ASSESSMENT

In this volume of our blog, we are presenting a document that was pulled from our early archives that illustrates (at a high level) “Total Cost Management” and “Total Supply Chain Assessment” leading to Supply Chain Improvement.

The first graphic entitled “Total Cost Management” provides a summary of the various actions in various assessment phases. These phases include Pre-Selection Data made up of product segmentation, gap analysis inputs, cost data, and competitive product teardown/analysis. This information feeds into various phases including Total Cost Model, Continuous Improvement Process, Total Supply Chain Value Workshop (incl. Product Design Changes/Logistics/Process Improvement/Administrative Kaizen), and an Action Plan (incl. cost drivers, sources, plan schedules). The Cost Agreements coming out of the Action Plan filtering led to Management Review and Commitment, which in turn inform and are informed by Key Metrics that support quality, cost, delivery, and customer considerations.

The second graphic entitled “Pre-Selection Data” provides a little more insight into the Pre-Selection phase elements. The discussion of Competitive Product Teardown/Analysis should not be minimized! Such an approach can and will provide valuable information regarding contributors to quality, cost, supply chain enhancements. Depending on which competitors you decide to analyze, you will also gain knowledge of valuable customer satisfaction drivers! An additional consideration: when we conducted competitive teardown and analysis at our Toyota company, we included the participation of every associate who participated in making or supplying the various components as we considered re-designs or new designs. These associates were able to help our engineers understand various machining and assembly advantages from the different designs. We held workshops with combined attendance of plant and management associates, and engineers to make the most of the multitude of recommendations.

To be clear, this approach to Total Cost Management is not only appropriate for manufacturing organizations, but it can also be readily adapted for call centers, bank processes, product design across business sectors, government supply chains and processes, healthcare businesses, etc. I have personally used this approach or an adaptation in nearly every sector. Hopefully you too will gain or help others benefit from our Total Cost Management Model example!

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